Dole Holders See Deja Vu in Push for Deal Bump: Real M&A

The fresh fruit and vegetable seller has traded above the
$12-a-share buyout offer from Chairman and Chief Executive
Officer David Murdock since it was announced this week -- a sign
traders expect a sweetened offer from the 90-year-old. That’s
what Murdock had to do the first time he took Dole private 10
years ago, eventually boosting his bid 14 percent. He then took
the pineapple producer public again in 2009 at $12.50 a share.

Murdock’s offer to buy the about 60 percent he doesn’t
already own values Westlake Village, California-based Dole at
0.25 times this year’s sales, the cheapest in a similar-sized
U.S. food deal since 2009, according to data compiled by
Bloomberg. Barclays Plc said investors may raise concerns about
whether the price is fair for the now $1.1 billion company. It
could be valued at about $15 a share, said BB&T Corp. and
shareholder Adirondack Research & Management Inc.

“It’s a good starting bid from Mr. Murdock,” Roy Behren,
who holds Dole shares as part of the $4.7 billion Merger Fund he
co-manages at Westchester Capital Management LLC in Valhalla,
New York, said in a telephone interview. “In our view, it’s a
little bit light. They have valuable land. They have a nice
franchise. They have a well-known name. It certainly has
value.”

Under Review

C. Michael Carter, Dole’s president and chief operating
officer, declined to comment beyond the company’s June 11
statement that its board will meet soon to form a special
independent committee to review Murdock’s proposal.

Murdock “feels this is a fair bid,” Scott A. Griswold,
his spokesman, said in a phone interview. “Right now, he’s not
considering any changes. We’ll have to wait and see.”

Murdock, who served as Dole’s CEO for 22 years through
2007, returned to the helm earlier this year. He replaced David A. DeLorenzo, who left to manage the packaged foods and Asian
fresh-produce businesses that Dole sold to Japanese trading
house Itochu Corp.

This week, Murdock offered $12 a share, or about $645
million, for the about 60 percent of Dole shares that the
nonagenarian and his family don’t already own. Dole jumped 22
percent on the news of the buyout proposal, the most since the
company’s IPO, immediately surging past the offer price. The
stock closed yesterday at $12.59, 4.9 percent higher than
Murdock’s bid.

Today, the shares rose 1 percent to $12.72.

Murdock said the deal values the total company at about
$1.5 billion, including net debt.

Opportunistic Bid

The bid was a 15 percent premium to Dole’s 20-day average
stock price, compared with the average premium of more than 28
percent for U.S. food deals valued at more than $1 billion,
according to data compiled by Bloomberg.

“This has been timed in an opportunistic way for him to
try to buy it back cheaply, but I don’t think that will work,”
Moore said of Murdock’s bid in a phone interview. “He’s going
to have to pay up for it.”

In 2003, Murdock had to boost his bid to purchase the Dole
stock he didn’t own to $2.5 billion, or $33.50 a share, up from
an initial offer of $29.50 that was rejected as too low.

Bids from majority holders and founders tend to “receive a
higher level of investor pushback,” and shareholders may raise
concerns about the value of Murdock’s latest go-private offer,
Hale Holden, a credit analyst at Barclays, wrote in a June 11
report. He still said there’s a “relatively high probability of
completion.”

Depressed Price

Murdock made the bid after Dole lowered its earnings
guidance and indefinitely suspended share repurchases, sparking
a drop that sent the shares to as low as $9.27 on June 4.

“The bid came off of what I consider to be a fairly
depressed price,” Lesa Anne Sroufe, chief investment officer at
Seattle-based Lesa Sroufe & Co., which oversees about $250
million, including Dole shares, said in a phone interview.
“Good businessmen like Mr. Murdock are always opportunistic. I
absolutely don’t blame him for making an offer at this time.”

Murdock’s proposal values Dole’s equity at about $1.07
billion, or about 0.25 times this year’s projected sales of
$4.24 billion, according to analysts’ estimates compiled by
Bloomberg. That’s the lowest revenue multiple for a U.S. food
deal of more than $1 billion since JBS SA bought 64 percent of
Pilgrim’s Pride Corp. in 2009, according to data compiled by
Bloomberg.

“Our gut feeling is that it’s slightly undervaluing the
company,” Matt Reiner, a money manager at Adirondack Research,
which oversees about $145 million, including Dole shares, said
in a phone interview.

Offering More

Dole could be valued at $15 a share, based on the sum of
its parts and accounting for real estate assets such as its
properties in Hawaii and the company’s corporate headquarters,
Reiner said.

Brett Hundley, a Richmond, Virginia-based analyst at BB&T
who also gives Dole a potential value of about $15 a share, said
Murdock could offer more if he faces pressure from shareholders.

Murdock “definitely prefers to own the business outright
and prefers to have it private,” Hundley said in a phone
interview. A sale of the company’s Hawaiian land assets -- which
the company has said it is actively marketing -- “would soften
the blow” of funding a higher bid.

Moore of MKM estimates Murdock may raise his bid by as much
as 15 percent, to as high as $13.80 a share, based on the amount
he increased his previous proposal to take the company private
if a similar scenario occurs.

Other Bidders?

It’s also possible that Dole could attract interest from
private-equity suitors, said Reiner of Adirondack Research.

“It’s a business that, over the long run, there’s always
going to be demand for their products,” he said. “In a well-run private-equity firm, I’m sure they can improve the cash
flows and maybe it makes sense.”

Without a better offer on the table, it may be difficult
for shareholders to get much more money out of Murdock,
according to Alfredo Scialabba, a New York-based special
situations analyst at GFI Group Inc.

“If there’s a bump, we’re looking at a nano bump,”
Scialabba said in a phone interview. “At best, I see like a
minimum bump of about 5 percent” to the current offer, which
would boost the price to $12.60 a share.

Murdock is well-positioned to close the deal given his cash
bid, his status as a company insider and the premium to the
unaffected share price, Jonathan Feeney, a Philadelphia-based
analyst at Janney Montgomery Scott LLC, wrote in a June 11 note
to clients.

Long View

Still, for shareholders who have a longer-term view of
Dole’s potential value, the offer from Murdock falls short,
Hundley of BB&T said. Dole is projected to post its highest
earnings next year since 2009 after two years of losses,
according to analysts’ estimates compiled by Bloomberg.

“The fundamentals should actually improve for the industry
going forward,” Hundley said. The offer is “above where it was
trading before the deal was announced, but we think in a
normalized environment, the shares are worth closer to $15.”